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Newbie tax questions

    • 24 posts
    January 2, 2007 5:49 PM EST

    First off, I do know I should be going to an accountant for these questions and I will be sometime this month but I`m too impatient and am very curious about the questions.

    Just to set the stage, this year I formed an LLC with a partner for a software/webdesign company.  We both have normal 9-5 jobs and do this work mostly in the evening.  This past year we had no revenue (as we`ve bee doing mostly development) and a small amount of direct expenses.  So now a few questions

    1) Even though we have little expenses and no revenue should we still see a CPA (I`m pretty sure I know the answer but figured I`d ask)?

    2) Since this year (and probably next year) revenue will be low and expenses high (or at least higher) do our losses roll over to regular income to reduce our net?

    3) If my partner and I plan to be 50/50 partners but we spend different amounts on expenses can we easily write off different amounts as losses?

    4) In a situation like ours what would you consider reasonable things to expense?  Home office space? Home office supplies? Any other common things I may be forgetting?

    5) Any other things a newbie like me should be thinking about and/or doing?

    Thanks in advance,

    Frank

    • 59 posts
    July 25, 2007 5:30 AM EDT

    First off, I do know I should be going to an accountant for these questions and I will be sometime this month but I`m too impatient and am very curious about the questions.

    Just to set the stage, this year I formed an LLC with a partner for a software/webdesign company.  We both have normal 9-5 jobs and do this work mostly in the evening.  This past year we had no revenue (as we`ve bee doing mostly development) and a small amount of direct expenses.  So now a few questions

    1) Even though we have little expenses and no revenue should we still see a CPA (I`m pretty sure I know the answer but figured I`d ask)?

    2) Since this year (and probably next year) revenue will be low and expenses high (or at least higher) do our losses roll over to regular income to reduce our net?

    3) If my partner and I plan to be 50/50 partners but we spend different amounts on expenses can we easily write off different amounts as losses?

    4) In a situation like ours what would you consider reasonable things to expense?  Home office space? Home office supplies? Any other common things I may be forgetting?

    5) Any other things a newbie like me should be thinking about and/or doing?

    Thanks in advance,

    Frank



    1.  If you formed an LLC "with a partner" that means you will need to file either a partnership tax return Form 1065 or a corporate tax return Form 1120 or Form 1120S.  These are complex tax returns and many elections for new businesses must be made on the initial return; thus, even though you have little to no revenue, it is usually worth your money to find and hire a good tax accountant to help you prepare this first year return.  If you don`t and you end up filing the wrong form (like a Schedule C) or not making an election (such as §195) it could end up costing you much more than the cost of a good tax accountant from the start.

    2.  The answer to this question will depend on whether you are a partnership or corporation and what your LLC operating agreement states.

    3.  The answer to this question should be in your LLC operating agreement.  Do you have an Operating Agreement?  When lawyers help you form your LLC they remind you of this necessity and, as long as you pay them, they will draft it for you.  If instead, you did your LLC on your own, through the Internet, they usually have a disclaimer stating that YOU are responsible for drafting this yourself.  You certainly can draft this yourself, but it needs to be done and the sooner the better.

    4.  You are allowed to expense all "ordinary and necessary" expenses used to incur business income.  This is a very large list.  You specifically asked about "home office deduction".  This deduction is not available to all forms of entities; thus again, the first step is knowing if you intend to file as a partnership or corporation or S-corporation, before this question can be answered correctly.

    5.  Get yourself a good tax accountant as soon as possible.

    Best wishes,
    Gina

    ---
    Gina L. Gwozdz, CPA
    http://GLGcpa.com
    http://TaxTreasures.com

    • 3 posts
    December 16, 2011 2:52 PM EST

     

    'If I get my EIN before I start my business, do I have to file taxes as a business? And if not how long do I have before I do? And do i have to pay some kind of fees for the EIN.

    • 88 posts
    May 23, 2010 8:30 AM EDT

    This sounds a little like drop shipping. It's pretty straight forward. Just make sure you got a proper shopping cart and ecommerce shop front.

    ---
    Seo Consultant | Cure Autistic Adults | Industrial For Rent | Business Park

    • 12 posts
    September 19, 2007 10:17 AM EDT

    We`ve already purchased supplies from a business that won`t tell us its EIN.  The owner thinks that if we don`t have his EIN, we can`t report his income to the IRS and he can then dodge taxes.  Is there a way to track down the EIN of a supplier who refuses to provide it?  Is there a way to look up the supplier`s EIN online?

    In most cases you do not have to issue a 1099 unless you have paid them more than $600 during the year. If they do not want to complete W-9 form, then either cancel the use of their services or deduct 28% for backup wittholding from their check on anything over $600. That will usually get them to give you their EIN.

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    Rebecka Melson | Virtual Business Services | www.vbsofok.com

    • 10 posts
    January 6, 2007 9:33 AM EST

    1) I don`t think you need a CPA. I do think you need an accountant or bookkeeper. You will be greatly rewarded with what they can teach you. A good one should help you see where to make improvements in spending, billing, pricing, etc.

    2 & 3) I agree with MNGrillGuy.

    4) You need a separate bank account for your business. EVERYTHING having to do with your business should come into and go out of that account. If you try to keep it straight with receipts and journals, you`re just creating a lot of extra work for yourself and will very likely miss deductions.

    You might consider using a simple accounting program like Quicken or Microsoft`s newOffice Accounting 2007. Right now they are offering it for free. You just need to download it from their site.

    Pat Palmer

    Accutrack Business Solutions

    Working with You to Keep Your Organization on Track

    407-957-4140

     

    “A taxpayer is someone who works for the federal government but who doesn`t have to take a civil service examination.”           - Ronald Reagan, US President

    ---
    Pat Palmer
    Accutrack Business Solutions
    Working with You to Keep Your Organization on Track
    407-957-4140

    • 154 posts
    January 3, 2007 6:13 AM EST

    1)  No way.  This should be easy to do with tax software.  (Schedule C)

    2)  Your losses roll over to reduce each of the partners regular income as a % of ownership.

    3)  You can`t write off different amounts if you are 50/50.  You should square up with each other before filling the taxes.  Or change the % ownership accordingly.

    4)  This is where an accountant is useful.  Or due so web research.  Tax software helps here as well.

    5)  Keep good records of all transactions.  Set up a seperate business account if you haven`t done that yet. 

    ---
    Travis Tschepen
    Hibachi Bros. LLC

    --My goal in life is to be as good of a person my dog already thinks I am.--

    • 7 posts
    July 23, 2007 10:33 AM EDT

    We`ve already purchased supplies from a business that won`t tell us its EIN.  The owner thinks that if we don`t have his EIN, we can`t report his income to the IRS and he can then dodge taxes.  Is there a way to track down the EIN of a supplier who refuses to provide it?  Is there a way to look up the supplier`s EIN online?